Chapter 23 considers contract provisions that liquidate—fix—damages for breach. Such provisions are reviewed with special scrutiny. The most general formulation of the special-scrutiny rule is that liquidated damages provisions are enforceable only if actual damages are difficult to estimate and the liquidated amount is a reasonable estimate of the actual loss from breach. It is sometimes incorrectly argued that the special-scrutiny rule rests on the premise that liquidated-damages provisions lend themselves to blameworthy exploitation and one-sidedness, that this premise is incorrect, and thus the special-scrutiny rule is incorrect. The true justification of the special-scrutiny rule, however,is that liquidated-damages provisions are systematically likely to reflect the limits of cognition.
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